SBA Communications Corp (SBAC) 2005 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the SBA third-quarter results conference call. At this time, only participants are in a listen-only mode and later we will conduct a question-and-answer session. Instructions will be given at that time. (Operator Instructions). As a reminder, this call is being recorded today, November 8th, 2005. I would now like to turn the conference over to our host, Ms. Pam Kline.

Thank you for joining us this morning for SBA's third-quarter 2005 earnings conference call. Here with me today are Jeff Stoops, our President and Chief Executive Officer; Kurt Bagwell, our Chief Operating Officer; and Tony Macaione, our Chief Financial Officer.

Before we get started, I need to get the standard SEC disclosure out. Some of the information we will discuss in this call is forward-looking, including but not limited to any guidance for 2005 and beyond. These forward-looking statements may be affected by the risks and uncertainties in our business. Everything we say here today is qualified in its entirety by cautionary statements and risk factors set forth in last night's press release and our SEC filings, particularly those set forth in our Form 10-K for the fiscal year ended December 31st, 2004, which document is publicly available. These factors and others have affected historical results, may affect future results and may cause future results to differ materially from those expressed in any forward-looking statement we may make. Our statements are as of today, November the 8th, and we have no obligation to update any forward-looking statement we may make. Our comments will include non-GAAP financial measures as defined in Regulation G. The reconciliation of these non-GAAP financial measures to their most comparable GAAP financial measures and the other information required by Regulation G is included in our earnings press release, which has been posted on our Web site at www.SBAsite.com. As described in our SEC filings, all historical financial results presented herein for the three months and nine months ended September 30th, 2004 have been restated to reflect the Company's change in its method of accounting for ground lease expense. The financial results of the Company's Western services segment, which was exited in 2004, are reflected as discontinued operations in accordance with Generally Accepted Accounting Principles for the three months and nine months ended September 30th, 2004. Other than the net loss information, all other financial information that we will discuss is from the Company's continuing operations. Tony, can you give us a comment on the third-quarter results?

Thanks, Pam, and good morning, everyone. We had another very good quarter, which sequentially improved year-over-year growth on the site leasing side of our business. In the quarter, both Site Leasing revenue and Site Development revenue were up significantly over the year-earlier period. Total revenues were 66 million, up 12.4% over the year-earlier period. Site Leasing revenues for the third quarter were 41.1 million, up 11.2% over the third quarter of 2004 and up 5.6% sequentially over the second quarter of 2005. Site Leasing segment operating profit was 29.4 million, up 17.2% over the year-earlier period and up 8% sequentially from the second quarter of 2005. Our Site Leasing segment contributed 94.8% of our total segment operating profit in the third quarter.

Site Development or services revenues were 24.9 million, up 14.4% over the year-earlier period. Services segment operating profit was 1.6 million, the same as in the earlier year. Services segment operating profit margins were 6.4% in the third quarter compared to 7.4% in the year-earlier period. Our carrier customer stayed big (ph) in the third quarter, allowing us to post slightly higher services revenue over the second quarter. Kurt will discuss the services business in more detail shortly.

Under our definition of Tower Cash Flow, which excludes non-cash leasing revenue and non-cash ground lease expense, Tower Cash Flow was 29.8 million, a 13.7% increase over the year-earlier period and up 5.2% sequentially over the second quarter of 2005. Tower Cash Flow margin was 73.5% compared to 71.4% in the year-earlier period.

Leasing expenses once again came in lower than expected, with some of the progress from a 500,000 onetime benefit from a reduced property tax reserve accrual. Year-over-year, we improved our Tower Cash Flow margin by 210 basis points. We continue to believe the Tower Cash Flow margin for each quarter over the next year will be up 150 to 200 basis points over the year-earlier period. These results in a historical trend of steady margin increases are the reasons we continue to believe the Tower Cash Flow margin will eventually reach 80% or more.

SG&A expenses for the third quarter were 6.7 million, or 6.6 million excluding non-cash compensation items. This was materially reduced from the 7.4 million in the year-earlier period, which reduction was due primarily to onetime benefits associated with legal fee recoveries and insurance premium repayments. We expect fourth-quarter SG&A expense to return to the 7.1 to 7.3 million range.

Net loss from continuing operations and net loss were both 14.4 million, substantially reduced from the year-earlier period. Net loss per share from continuing operations and net loss per share for the third quarter were both $0.19. Weighted average shares outstanding for the quarter was 74.5 million. Adjusted EBITDA, which also excludes non-cash leasing revenue and non-cash ground lease expense, was 24.8 million in third quarter, up 20.6% over the year-earlier period and up 9.4% sequentially from the second quarter of 2005. The onetime benefits I just discussed produced approximately 1 million of our third-quarter adjusted EBITDA, which is similar to the amount of onetime benefits we had in the year-ago period. Adjusted EBITDA margin was 37.9%, up from 35.2% margin in the year-earlier period.

We built 16 towers in the quarter, acquired 61 towers and ended the quarter with 3,215 towers. Cash capital expenditures in the third quarter were approximately 29 million, of which we spent 800,000 on maintenance tower CapEx, 1.2 million for augmentations and rebuilds, 500,000 on corporate CapEx. We also spent 22.8 million on acquisitions, ground lease purchases and related fees, prorations and earn-outs, and 3.7 million on new tower builds and new tower work-in-progress. Kurt will talk about the new build programs in a few minutes. In addition, we issued approximately 600,000 shares of common stock on the acquisition of the 61 towers.

Our cash flow from operating activities in the third quarter was 18.4 million, up substantially over the year-ago period. Since the end of the third quarter, we have been involved in two Capital Markets transactions, both of which will materially improve our balance sheet. At this point, I'm going to turn the call over to Pam, who will update everybody on the balance sheet and those two transactions.

Thanks, Tony. Debt balances at September 30th, 2005 were 342.9 million under our $400 million Senior Credit facility, 254.3 million of 9.75 Senior Discount Notes and 250 million of our 8.5% Senior Notes. We had net debt of 822.2 million after giving us back the 25 million of cash and restricted cash. We had an additional approximately 53 million available to us under the credit facility at September 30th for a total liquidity of 78 million. In the fourth quarter, we redeemed 42.9 million of our 9.75% Senior Discount Notes, (inaudible) 52.4 million of same (ph) amount and 87.5 million of our 8.5% Senior Note, with a portion of the 151.6 million of net proceeds from our 10 million share public common stock offering. The equity issue reduces our interest expense by approximately 11.5 million per year. Finally, we priced a $405 million debt issuance for five-year commercial mortgage pass-through certificates. There will be five different classes of certificates issued, all of which are expected to be rated investment-grade. We achieved an all-in fixed average weighted rate of interest of 5.6% on a contract basis and 4.8% on a GAAP basis after giving effect to the existing hedging arrangements. For those of you who model us on a cash basis, we recommend that you model the 5.6% contract rate on the debt, since we will cash settle this hedge this week and receive approximately 15 million, which will be added to our cash balances. We expect the debt issuance is to close by November the 18th, and we will use a portion of the anticipated 395 million in net proceeds to refinance our $400 million Senior Credit facility, which currently has 320.9 million outstanding.

The September 30th interest rate on the credit facility was approximately 6.1% and it has gone up since then, so we will see a rate benefit from the CMBS transaction. The CMBS transaction involves 1,714 of our towers or about 55%, leaving the remaining 45% of our towers unencumbered post CMBS. We anticipate using those unencumbered towers as collateral for a new facility that we intended to put in place for interim working capital and acquisition financing, while we determine the best method and timing to refinance the remainder of our high yield debt. On an as-adjusted basis, after giving effect to the equity issuance, the CMBS transaction and the interest rate hedge settlement, our net debt to annualized adjusted EBITDA leverage ratio was 6.8 times at September 30th, 2005, right in the middle of our target range of 6 to 8 times. On the same-adjusted basis at September 30th, net debt was 677.8 million. All of the debt was fixed-rate and our weighted cost of the debt was 6.9%. We have included our fourth-quarter and an updated full-year 2005 outlook in a press release. The ranges of all items of our full-year 2005 outlook have changed, so we encourage you to review that portion of the press release carefully.

Please keep in mind that our definition for Tower Cash Flow and adjusted EBITDA in our outlook excludes non-cash revenue and non-cash ground lease expense.

Kurt, would you please provide an update on operations?

Thanks, Pam. Operationally, the third quarter was solid for us at SBA on many different fronts. Revenues and margins were stronger than the last quarter in the year-ago period, costs were held in line or below expectations, we picked up the pace on growing our asset base and finished the quarter with solid backlogs.

On the tower leasing side of our business, carrier activity continued to be strong for both new leases and lease amendments. We saw a wide variety of deployment by our customers, ranging from core major market activity to coverage expansion along corridors. At the core of this activity, we continue to sense the need of our clients to increase their network depth and quality to offer the most competitive set of voice and data products.

During the third quarter, same tower revenue growth on the 3,045 towers owned at September 20th, 2005 and 2004, was 9%, while same tower cash flow growth was 15%. Seventy-six percent of our new leasing business signed in Q3 came from new tenants, while 24% came from amendments to existing installations. That was our highest percentage contribution from amendments ever, reflecting hi carrier network capacity enhancement and new technology activity.

Backlog was very good at the start of Q4 and we anticipate another strong performance to finish off the year. We believe that gross revenue added per tower for full year 2005 will be as good or better than it was in 2004, which was a very good year for SBA and our industry. We believe the leasing environment will continue to be robust in 2006.

Our end of the quarter tenant count was 7,905, with average cash basis rents rising to $1,750 per month, our highest ever. That's an operational jump of over 7 million, in annualized run rate leasing revenue in just one quarter. We experienced a broad spread of leasing activity from each of the large wireless carriers in Q3 in addition to activity from regional carriers, data carriers and municipal state and federal entities. No sell-side decommissioning from the two major wireless mergers has occurred for SBA. While we expect some in the future, we continue to believe it will not be material.

The operational cost for our tower portfolio remains very stable and predictable. While Q3 is typically our highest each year due to the active summer weather, we came in right on plan with our budgeted expense categories and spent very little additional OpEx on hurricane cleanup due to Hurricanes Katrina, Rita and Wilma. Our portfolio fared very well during all three storms, with downtime to our clients caused mainly by independent power and backhaul outages. I'm pleased to say we suffered no material asset damage, with only one tower structurally impacted by the storms. We will spend approximately 250,000, some on OpEx, some CapEx, for the cleanup from all the storms, with the biggest item being debris removal. Some of those expenditures will be reimbursed by insurance.

Maintenance CapEx for our towers continues to run at an annualized rate of less than $1,000 per tower per year, while net structural or augmentation CapEx, ran below $500,000 again in Q3.

On the asset growth front, our new tower build program continues to expand. During the third quarter, we put 16 new towers into service in the Northeast and Southeast United States. Between October 1 and today's call, we put an additional five towers into service, bringing us up to 25 for the year and 35 since the program started back a year ago. We have an additional 36 new towers in their final stages and are anticipating to have a total of 40 to 45 towers completed for the full 2005 year. We continue to be aggressive in this area, but we will not compromise our return goals for the sake of volume. We continue to see our backlog grow and believe we will produce even higher numbers for 2006. The recent FCC action to alter the tribal notification and consultation process is a welcome event that helps streamline our activities with new tower builds.

In the services segment of our business, Q3 came in with higher revenues than expected and roughly breakeven margins from a net perspective. Revenues were 24.9 million with gross operating profit of 1.6 million, or roughly 6.4%. This level of profit is roughly breakeven after allocating SG&A expense. We continue to press price point in this business as these margins are below our target range. We continue to perform services work in our core historical areas of wireless expertise, that being site acquisition, technical services and construction. These groups also continue to support our leasing and new tower build functions at SBA through an integrated plan across the division. At this point, I'll turn it over to Jeff.

Thanks, Kurt, and good morning, everyone. We had a very good third quarter in terms of our financial results, the level of carrier activity we experienced and the balance sheet improvements we affected after quarter-end. I want to start my remarks, however, with a report on the three major hurricanes we suffered since our last report to you, Katrina, Rita and Wilma. Some of the areas in which we do business were hit pretty hard. Our industry, however, has proven very resilient in the face of the hurricanes. As Kurt mentioned earlier, we expect no material financial impact from the storms with all expenses reflected in our third-quarter results or fourth-quarter guidance. Most importantly, I want to thank all of our employees for their efforts through these very tough times, whether in the form of charitable contributions, overtime, taking in fellow employees or other acts of charity and kindness. As a result, we have missed barely a beat as a Company and I could not be more proud of our employees and I thank them all.

Our customers continue to be very busy improving their wireless networks. The drivers behind their network investment continue to be very strong. Overall subscriber and minutes-of-use growth continued in the third quarter. This type of growth and the desire to offer new and improved wireless services, most prominently data, requires our customers to invest more in their networks and their improved financial health gives them the confidence and ability to do so. Our customers are very busy and we expect them to stay that way through the end of 2005 and into 2006. Recent announcements of Sprint/Nextel's joint venture with the cable companies, mobile video offerings and a continuous stream of new wireless devices only solidifies our beliefs. As a result, we have increased the midpoint of our full-year outlook for both leasing and services revenues.

I'm very proud of the fact that we as a Company have done exactly what we said we were going to do at the beginning of the year. If you recall, we said our primary goals were growth, continued strong operational performance, the reduction of leverage and reductions in the cost of our debt. We have executed very well on all four. As a result, we are extremely well positioned for strong equity free cash flow growth in 2006 and beyond. We take a great deal of encouragement from this quarter's results, particularly the 20 million growth year-over-year of quarterly equity free cash flow. Those results do not reflect the substantial interest savings to come from the recent equity and CMBS transactions.

The CMBS transaction Pam described earlier is a tremendous accomplishment for us. Clearly, the rate is very good and well below what we were paying on the credit facility. More importantly, we have established a path and process by which we can fund our business long-term in a market that currently provides the most preferential interest rates at the target leverage levels in which we want to operate. Two points in particular are worth noting about the transaction.

First, we will have been able to do the deal in about five months, or about half the time people expected. Second, these securitization deals are priced at a spread to the current swap rate. We priced our deal at an all-in spread of 62 basis points, the tightest spread ever for a tower company. These results are a function of the quality of our assets, our data and our people. The combination of our reduced leverage from the equity issue and establishing a new market of CMBS securities for us positions us well to refinance the last of our current high-yield debt. We will now turn our focus and attention to finding the right time to do that.

Another benefit from the CMBS transaction is that for the first time as a public company, we have the ability to repurchase our stock or pay a dividend. Under our existing high-yield debt, we have restricted payment ability of approximately $150 million. While we don't expect to repurchase stock or pay a dividend in the next twelve months, instead, using excess liquidity to further invest in our business, it's nice to have that flexibility.

With respect to use of excess cash, we intend to continue to invest in new tower assets that meet our return expectations while staying within a 6 to 8 times leverage range. We want to grow equity free cash flow in both absolute and per-share terms. We continue to see ourselves as a high-growth company. We hope to be able to step up our investment in new builds to 100 or more in 2006 and beyond, and we will continue to be active in acquisitions, probably along the lines of the smaller acquisitions like those we have been doing. Our acquisition team has done a great job and we are very happy with the towers we have purchased. Our goal and strategy here is very simple -- invest in assets that will maintain or increase our same-tower revenue growth and same-tower cash flow growth results. If at the right price, almost by definition, these types of investments will meet our internal rate of return goals. And if they meet both our growth and IRR goals, we expect them to be accretive to equity free cash flow per share over a five-year period of time. If we can't find new asset investment opportunities that are accretive to equity free cash flow per share, we will begin to explore a dividend or stock repurchase strategy, but our desire continues to be to further invest in and grow our business.

We continue to knock big items off the to-do list here at SBA. We are now down to three -- continued operational excellence, portfolio expansion that meets our invest criteria and refinancing the remainder of our high-yield debt into lower rates. We are very excited about our prospects for the rest of this year, 2006 and beyond, and we look forward to continuing to report our progress.

Operator, at this time, we are ready for questions.

(Operator Instructions). Ric Prentiss.

A couple of questions for you. First on the pipeline, obviously, you've had your first goal there on using your equity free cash flows, we are glad to see positive and growing as to grow your business. What are you seeing as far as the pipeline, as far as quantities available, what kind of prices are you seeing out there as far as multiples go? And do you expect to see big tower portfolios from carriers come on the market and is that in your sites as well?

Well the opportunities out there, Ric, range from one-tower deals to several hundred tower deals, is kind of the current landscape out there. And the multiples have picked up a little bit on the high end. I think the appropriate range today is 13 to 17 times tower cash flow with the primary determinant there being the growth rates and maturity levels of the assets. Less mature, higher-growth assets will command a higher day-one tower cash flow multiple. And our history has been, we will seek out the best deals we can and we'll buy one tower at a time if that's what it takes to find the right investments. So we're kind of all over that spectrum and trying to look at everything that we can and making the best decisions and investments that we can.

In terms of the carriers, I think they are all watching and have watched with great interest the Sprint transaction. I think it is a matter of time before you see more carrier transactions that will come down. I do think they will come down the pike. In terms of SBA's interest in those, we will look at those as we always do, but we have never felt a need to be bigger just for the sake of getting bigger, and we will only do deals that we feel that they will be accretive to equity free cash flow over a five-year period of time. And we'll just have to see what kind of things come down the pike and whether that fits our criteria or not.

Well, clearly having a better balance sheet certainly lets you at least take a better look at those things.

Yes.

Another question, Kurt, you had mentioned that still no decommissioning efforts seen on either the Cingular/AT&T or Sprint/Nextel merger, and that you didn't believe there would be any material impact in the future. What gives you comfort to have the second part of that statement? Was Cingular wanting to show their decommissionings ramping up in '06? And what is your exposure to Cingular/AT&T if they do take off, growths take off say 4 or 5,000 sites next year?

Our exposure is that pure overlap is only a couple hundred sites in total and some of those sites we don't believe that they can -- they are somewhat limited in their capabilities physically on them as to what they can do with the combining of the networks. So it's just the whole process has been slower roll-out than planned, and I think it's going to really just drag out over more time than people expected as we're starting to see already.

What we have seen, Ric, in a very preliminary basis, is that any thought of taking off one installation is generally accompanied by an amendment to the other installation to kind of bring it up to more capacity. And by the time you net out those two results, it really reduces the materiality from our perspective.

Okay. Well I know Cingular wants to use their cell site advantage versus Verizon, so hopefully it is somewhat muted for you guys.

Jim Ballan.

Guys, have the carriers started to talk to you about their '06 network build intentions? And if they have, what direction do you think they are going to be going? Do you think it will be more next year, less next year, about the same? Do you have any visibility into that yet?

We do and we have varying details based on carrier, and we probably should avoid the specifics. But we feel pretty good, Jim, that next year is going to be very strong, very strong. I can't say it's going to be materially more than 2005, but we have no reason to believe at this point that it's going to be materially less.

But it sounds like you've had this acceleration of sort of the pace of lease-up over the course of the year? I mean, do you think we're going to see a continuation of that acceleration, or it would level off at this level that we are at, which seems to be a pretty rapid pace?

Well, carriers tend to work in cycles and it's probably most relevant to look at things on a year-over-year basis instead of quarter-by-quarter. I mean we had an unbelievably strong Q2 in terms of operational lease-ups, some of which you are now seeing flow through, not even all of it yet, through the financial results. So we had a very strong Q3 as well. Q4 right now as we sit could be the best one yet of the year. It's very, very strong and busy out there.

Now carriers they tend to kind of get their ducks in a row at the beginning of each year, so you may have a drop-off in Q1, although that's not guaranteed because that didn't happen in 2004. And I mean I'd be a little hesitant to say at this point that we expect even more growth and absolute lease-up than we have seen. But I tell you what, we would be tickled pink and I think our shareholders would be tickled pink if we can kind of just maintain this level of activity that we're seeing today. And again, I don't see a reason why that should materially change.

Okay, that's great. One other thing if I may. The refinancing of the bonds that you have outstanding, can you talk to me a little bit about the criteria you are using, what the possible ways that you might refinance that? I mean it seemed to me that in past discussions that we've had that you are pretty focused on doing a second securitization. What are your other alternatives there and how are you making that decision?

Well, the securitization market continues to be probably today, in our view, the most attractive market. Now the gap has closed somewhat in the bank market. The ratings upgrades that we've received here at SBA and the industry in general has allowed better financings to occur in the bank market than was possible a year ago. And we will do what we always do. We are very opportunistic when it comes to picking our markets and ending up with the best deal we can in whatever market provides that. But we've spent a lot of time and effort positioning ourselves for that to be in the securitization market.

Do you think you can get the securitization done say by the first half of next year? Is that a reasonable goal?

Well, that's going to depend on a couple of things. It's going to depend on where we want to issue in the securitization market. This deal that we just did is expected to all be rated investment-grade, which is that the lowest tranche will be rated no lower than BBB-. It is possible to go lower in the rating structure. And by playing around with where we tranche the instrument and figuring out where that turns out from a rate perspective and our coverage ratios, which we view as the most important determinant of leverage and what to do there, I mean we could do that.

It's fairly easy to figure out the cost of taking out our debt. I think anybody can do that based on the relatively universally understood parameters of calling or tendering for the high yield, so that's kind of easy to figure out at any given point what that will cost. And it's just a question of how much do we want to pay for the amount of debt that would be necessary to take that out. And that's a calculation that we are constantly evaluating and then comparing that to where interest rates are.

That's not a direct answer to your question, but the direct answer to your question is midyear probably at the earliest and could go towards the end of the year, depending on what we decide we want to do and how far down the ratings on the core (ph) in the securitization market we tend to go. If we do another deal that's no lower than BBB-, that's going to produce less debt and less interest rate. If we go that route, it will take a little longer. If we go down to the BB level and pay a little bit higher rate to get things -- it could get things done sooner.

Got it. One last quick one if I may. '06 guidance, should we expect that in January like we did last year?

Yes.

Jonathan Atkin.

Most of my questions were asked, but one remaining question about ground lease purchases, what type of pace are you seeing now and what type of run rate going forward in terms of numbers of ground leases that you can purchase?

This year, we will probably close out the year with 5 to $6 million spent, Jonathan, on a combination of actual fee purchases and ground lease extensions. And that rate will --- it probably drops by a million or so next year as we kind of have now been through all of the ground owners at least once and we are working on our kind of second go-around with these folks. And it makes sense for us to always do that because people's circumstances change and people who weren't interested a year ago are interested today. So that's kind of the pace that we are at today and what we expect to see next year.

Richard Rolnick.

Very good quarter. Three short questions. On same-tower revenue growth of 9%, I think there was some one-timers last year and at least the numbers I'm working with has that at about 11% if you adjusted for those one-timers. Were there any one-timers this year in the third-quarter revenue?

Not in revenue.

Okay. So 9% is probably a little lower than sort of the normalized rate of increase, then?

You're right because the onetime stuff we had a year-ago period was mostly in the revenue line.

Okay. In terms of pipeline for new builds, I think in prior calls, you said that you wanted to build somewhere between 100 and 200 new towers in '06 and it looks like you're going to come in just a little lower than you had hoped for this year. And I know there was that Indian burial ground thing. Is the shortfall because the delay is longer, or is it because it's harder to find the opportunities?

Rich, this is Kurt. We've been very selective with our backlog. We're disappointed that we're going to be short of the 50 minimum number we had set for this year, but we're not that far off from it, and our backlog is really starting to build. It has just taken longer to build that backlog than we expected. We are being very selective looking at the costs very closely, zoning protection. The tribal historic issue you mentioned was a delay this year but that's pretty much gone now, so it's coming. We feel good about where it's at and where it's headed, and we are very happy with the quality of the sites we're ending up with. So it's just taken a little longer to build the quality of backlog than we thought, but we're not very far off and it's really moving forward.

So it would be fair to think that you would come in at 100 or north of there in the coming year, in '06?

Well, it's definitely our goal. If we had to post a number today, that's the one we would post.

Okay. And finally, in terms of balance sheet restructuring, are you guys basically done on new equity offerings for that purpose? I understand you may issue equity to acquire towers and acquire assets, but if you have gotten to your leverage goals, does that mean that we won't see new share offerings for that purpose?

Yes, that's correct.

Okay. Thanks, and it was a great, great quarter and I'm glad to hear the fourth quarter is going well. Thanks.

Blake Bath.

Three questions. Same-tower revenue growth for next year, I know that most of us have modeled a moderation from the current run rate of 9%. Did I hear you say you would expect that 9% to continue to be about in that range, I guess would be the first question.

The answer to that is yes, we would expect 9%. I mean the range we would look at for next year would be actually 9 to 11%. Remember, we had a couple million dollars of onetime leasing benefits last year, which somewhat mitigated that 9% figure, as Rich just pointed out. So we feel our true run rate number by equalizing all that onetime stuff is closer to 11% now.

That's great. Second, on new towers, can you just talk about the characteristics in terms of the tenants per tower and what kind of average rents you're getting versus the 1760 average for all your towers.

All new builds have to have at least one tenant. And one of the reasons that has also contributed to where we are in terms of numbers, we are not doing like we did years ago, these large wholesale obligatory type agreements. Everything we're doing today is really selected on a one tower-by-tower basis. And that's adding to the timing because you identify a carrier but then they -- it's up to them to decide exactly their timing. And we won't build a tower today without at least one telephony customer upfront paying a market rate. And actually, Blake, the number you mentioned that Kurt gave out, that's our average; that's across all tenants. Our telephony customers today, new tenants are paying well north on average of $1800 a month, and our new build anchor tenant rents are in line with that.

So there's a couple things that make our new builds much better, in our opinion, than before. No anchor tenant rent preferences. No naked towers; everything has at least one tenant on day one. And finally, we've changed kind of our process procedure and taken advantage of some opportunities for services in of the market to push the cost of the new builds down to around $210,000, which is a lot reduced from where we were three, four years ago. And so far -- you know, it's a little early; we only have owned about 10 of the new builds for a year, everything else is less. But so far, our actual tenants, second tenants leased up and third tenants in some cases, and pending lists, we are very, very pleased. So I think everyone is going to be very, very pleased with the actual returns on these towers. We would just like to do a few more of them.

Okay. I guess the last question, I understand the desire to expand the portfolio via the builds and small acquisitions, but how cheap or mis-valued would your stock have to be for you to do a share buyback program now that you are within your target leverage ratios?

Well, we look at a lot of different things. We are buying towers today at current multiples today that are accretive to our existing prices. So we think that's a good thing. And as long as we can continue to do that and grow at the pace we are growing, we think that is the right way to go. Now that's an easy answer because we really don't have the ability just yet to do anything material in the stock repurchase or dividend range, but I think at point in time where we could do something material is rapidly approaching a lot quicker than people might have otherwise thought. And over the next six months to a year, we're going to be watching all that stuff very carefully. We've played around with a lot of numbers here, obviously, and looking out over a five-year period, if you kind of replicate what we're doing this year in terms of the portfolio additions and the growth that we expect, we believe that program is going to produce on a compound basis, equity free cash flow per-share growth well north of 25%.

Great, okay. Well, keep it up.

Well, we are working hard.

David Marsh.

Most of my questions have been answered but I have a handful of clarification questions. First of all, any guidance on FY06 CapEx budget?

No '06 guidance just yet, David. We will put all that out in January, which is our custom.

Okay. One last thing. You guys went over this pretty quickly; I just wanted to make sure I have my facts straight. The CMBS transaction will close November 18th; is that correct? And then you'll take out the revolver in the entire senior credit facility with that. Is that correct?

Yes.

And then you're going to add on a second or a new, I should say, Senior Credit Facility after that?

Yes, that's our current intent.

Great. That's all I have. Great quarter.

Anthony Klarman.

First, I think Pam was talking about that sort of add-on facility, given that you only pledged a small portion, I guess maybe a little more than a third of your towers into the ABS. Is that going to be a traditional type credit facility, or would that be more of an ABS? And I guess the reason why I'm asking is, are you going to put in a more traditional type credit facility so that you can sort of make working capital draws and fund acquisitions and new builds more timely than you could given the setup costs of tranching out a new piece of ABS?

Yes. And actually, Anthony, let me just make sure you have your facts right. We securitized about 55% of our portfolio, not a third, 55%, so there's 45% remaining. And we will set up a new facility that will be very, very flexible. It will allow us to draw down based on what are still fairly substantial, unencumbered cash flows, and it will also allow us to release those towers over time to kind of facilitate additional securitizations but keep the equity and availability in the credit facility. So the goal is to have a revolving type thing that gives us maximum flexibility on a go-forward basis. Now keep in mind, all that is still subject to the four times stats of our 9.75 bond. So the combination of the debt we raised in the securitization market and whatever we do on this new facility all has to fit within that cash flow as bonds continue to be outstanding.

I guess that's where I was going., which was what, at this point is your incremental debt capacity that you could do to be able to fit with inside the op co bonds?

Well, based on -- it's not real great on the third-quarter numbers. It's about another 10 million above the 405 we will raise in the securitized deal. But actually, will ramp after that pretty quickly because you get to pro forma and acquisitions and we do expect some pretty strong growth. So it will grow every quarter and we feel real good about our liquidity position given our history and what we want to do. If you look at the press release, you'll get an idea when we pro forma out the debt and you see all the cash that comes in after the securitized deal and the hedge settlement, we are going to be in a big cash position the day we close the CMBS deal. And we feel real good that the combination of that and the new credit facility will do for us everything that we need to do.

And just talking a little bit about leverage; maybe this sort of ties on the back of that. I think originally, and maybe this has changed a little bit, but I thought your longer-term leverage goals or at least near-term, near or medium-term leverage goals, were higher than the 6.75 or 6.8 times pro forma run rate where you are. Might we see some incremental re-levering as you sort of pursue either an opportunistic acquisition or you obviously would need to add on some incremental leverage to retire the existing high-yield debt at a premium?

Exactly. And that's possible. I mean we took leverage down to the levels we are at today with an eye towards maximizing our flexibility towards taking out the remaining high yield, which would of course come at a premium.

And I think Pam mentioned what the cash settlement would be on the swap. I'm assuming as part of the CMBS, you had to fix the interest rate; is that right?

Yes.

So that 5.5 or 5.6, I think, the number you gave in the release is the actual fixed-rate equivalent?

That's the contract rate that we pay. And then on our financial statements, we won't record the swap gain as a profit; it will be accreted against the interest payments and you'll have a GAAP interest rate for the next five years of 4.8%. But we (multiple speakers) 15 million this week.

And you had given a restricted payments number to kind of illustrate I guess the buyback capacity or the dividend capacity, and is that pro forma for the recent equity offering or was that the actual at 9/30?

Actually, the equity offering doesn't change our restricted payments basket, because if you use equity proceeds to buy back high-yield debt, you don't get to count it towards your restricted payments bucket. So that kind of is -- that's not really pro forma.

Okay. And just a final question on the builds -- and I don't want to maybe spend too much time on this -- but obviously, I guess I'm just wondering what gives you the confidence that there is enough in the backlog to be able to expect more aggressively to move towards that 100 number versus where you were this year? I guess and maybe are there things other than the land rights issue that you discussed with some of the tribal land that -- I guess how much of the tower backlog or new build program did that impact in '05 so that we could get confidence around a larger build backlog for '06?

Well, that tribal consultation issue is a law and it affects every site that gets built. So it is something that affected everything we did and will continue to do, but thank goodness they've alleviated some of the burdens of that process. The confidence that we have is based on the size of the backlog today, which has grown a lot in the last six months and has put us in a very, very good position to hit the numbers that we are targeting for next year.

And I guess maybe just a final question on that. Are these all sites that are just unique sites in areas where you or another tower carrier doesn't have a competing structure within a search ring? I guess what I'm getting at is, I would imagine that first, you would be driving additional lease-up on your existing sites to enhance the IRR on the existing sites. So are these all sites that are being added by the carriers for coverage, or are they actually some of them capacity sites. Could you give some background on that?

This is Kurt. It's mostly coverage. There are some capacity sites, but they are definitely not competing with other structures. I mean these are stand-alone sites that we feel are multiple-tenant tracking towers in the long term.

Anthony, and this will be an oversimplification, but it has everything to do with the changing densities of networks. I mean years ago, you could get by with a tower every five or six miles, and today, it's three or less. So we are going back through areas that people thought were built 10 years ago and it doesn't work anymore because the old towers every six miles apart, there's a gap right in the middle.

Clay Moran.

Could you give us an update on the activity from some of the new tenants you're seeing? I guess the good example would be Clearwire. Is the leasing activity or backlog associated with these new tenants significant yet?

It's growing. I don't know what your definition of significant is. Telephony is still -- what was it, Kurt? What was telephony for a few(indiscernible)?

Eighty-three percent with the big four.

And overall telephony, which is in the mid 90's.

Yes.

So, it's still not -- I mean it's not more than a couple, 3, 4%, Clayton, but it's definitely growing. We are seeing more Clearwire applications than we've seen in the past. We are seeing, you know, we count metro and link (ph) kind of in telephony, but we are seeing media flow, which is the QUALCOMM video thing. We are seeing some other wireless Internet service providers. There is some renewed activity from some of the satellite radio guys. So it is increasing in absolute numbers, but is it yet significant from the kind of bread and butter telephony? No. That's still the lion's share of what we are getting.

Do you foresee a time when it could become a significant contributor, at least through, if not in total, but to revenue growth?

Yes. I think it will -- well, I don't know. If we grow 10%, it would be hard for me to think that more than -- less than 90% of that stuff is going to come from the bread and butter telephony today. So maybe it gets up to 10%. But you know, I probably would have had -- if you had asked me that question a year ago, I might have only said 5%.

And there are no further questions at this time. Please continue.

Great. Well, we certainly appreciate everyone's time and attention this morning and we look forward to next time we speak. Thank you, very much.

Ladies and gentlemen, that does conclude today's SBA third-quarter results conference call. This conference will be available for replay after 5 PM today until midnight on November 22nd. You may access the replay at any time by dialing 1-800-475-6701 or internationally, 320-365-3844 with an access code of 800523. Thank you for your participation. You may now disconnect.